Oracle's Larry Ellison Challenges Amazon, Salesforce And Workday On The Future Of The Cloud

In assessing the competitive dynamics of the enterprise cloud, Oracle founder Larry Ellison kept returning to the question, "Who's going to win?"Oracle.com

(Note: After an award-winning career in the media business covering the tech industry, Bob Evans was VP of Strategic Communications at SAP in 2011, and Chief Communications Officer at Oracle from 2012 to 2016. He now runs his own firm, Evans Strategic Communications LLC.)

CLOUD WARS -- Since Larry Ellison has spent the past 40 years competing brashly against and beating rivals large and small, it wasn't a huge shock to hear him recently rail about how cloud archrival Amazon "has no expertise in database."

But it was a shocker to hear Ellison go on to say that "Amazon runs their entire operation on Oracle [Database].... They paid us $60 million last year in [database] support and license!"

Ellison's point: if Jeff Bezos believes that Amazon's own database isn't good enough to run the company in today's megashift to the cloud, and that Oracle is the best choice for Amazon, then that's one of the very best endorsements for Oracle's supremacy in database over Amazon that Ellison could ever hope for.

That point also aligns perfectly with Ellison's penchant for playing the long game: knowing that what's taking place today in the frothy and exuberant early days of the cloud revolution might not be sustainable in the long run as sheer advanced-technology software and engineering prowess become the core competitive advantages.

And there's no question that Ellison, over the past several years, has often been puzzled and perhaps even frustrated by the veneration lavished on three of his primary cloud rivals by the media and analysts: Amazon, Salesforce.com and Workday.

So during a recent Oracle meeting with financial analysts, Ellison used the Q&A session to share his own long-game perspectives on why Oracle's 40-year pedigree of database supremacy and its more than decade-long commitment to being an end-to-end player in the cloud give it distinct advantages over each of those worthy competitors.

Of course, it's entirely possible that Ellison's outlook is flawed, and that Oracle will not achieve the levels of success across the cloud that he described.

But over the past four decades, Ellison's track record of visionary success and strategic positioning is stellar—so it's worth at least considering his predictions on how the enterprise-cloud business will unfold over the next several years, and particularly with regard to those three primary competitors: Amazon, Salesforce and Workday.

Amazon

We'll start with Amazon since it is widely viewed as a category king, and is viewed—incorrectly—by many in the media as the runaway champion of the cloud. The core argument from the Oracle founder is that creating and scaling modern database technology for the enterprise is so difficult, so challenging, so expensive, and so expertise-intensive that if you haven't been doing it with great success for a few decades already, you have absolutely no chance of jumping in today and hoping the cloud phenomenon will bend the laws of physics.

At the analysts meeting, Ellison was asked a couple of questions touching on the competitive capabilities of Amazon and whether it might be able to leverage its IaaS expertise to cut into Oracle's database leadership as businesses move from the on-premises world to the cloud. He gave a lengthy answer, from which these excerpts are key:

"To patch a database online, you have to have this feature called RAC [Real Application Clusters] where you have multiple computers accessing the same data and changing the same data and running at the same time," Ellison said.

"This is a very tricky problem—what's called a distributed locking problem. It's very hard computer science, and we’ve been doing it for a long time.

"Amazon doesn’t have it—they have nothing like it. If it ever showed up it would be developed by us as part of MySQL, certainly not by part of Amazon, because Amazon has no expertise in database," Ellison said, preparing to drop the big one.

"Amazon runs their entire operation on Oracle. Do you think they run on [Amazon's] Aurora or [Amazon's] Redshift? They're one of our biggest customers in the world—they gave us $60 million last year in [database] support and license! They’ve been one of our biggest customers forever," Ellison said.

"And you know who’s not on Amazon? Amazon is not on Amazon.

"But I know, I know," he said with a facetious sigh, "they're going to kill us."

This next excerpt is a bit lengthy, but here's where he makes his argument about the technological and real-world expertise Oracle has built up over the past few decades and why that will be the ultimate differentiator with Amazon.

"[Amazon's] really good at machine learning. By the way, so is Tesla. There are a bunch of new companies that are very good at machine learning, and they’ve applied that machine learning for digital assistants or self-driving cars or what have you.

"But to applying it to a database, you have to have a database! To be able to patch while the system is running, you have to have something like RAC to be able to provide real disaster recovery. You have to have something like Active Data Guard," Ellison said.

"We took workloads off of [Amazon's] Redshift and ran them on Oracle and Redshift took 15 times longer.... They’re on our website. Go look at them. They come from real companies. You take a Redshift workload and you run it on Oracle, it’s 15 times faster. Who cares? Well, when you’re charging by the second you care," he said.

"The problem isn’t that they don’t have the machine-learning half of the equation, it's that they don’t have the database half of the equation."

Salesforce.com

Asked about the competitive dynamics in the SaaS business, Ellison touched on the strengths and weaknesses of various leading vendors. In the case of Salesforce, his major criticism is that the company's product lineup is simply not broad enough to create, over time, the type of revenue flow that Oracle can generate with its end-to-end SaaS lineup.

"I mean I’d almost be curious to ask you guys: who do you think in the SaaS world in enterprise applications—Manufacturing, Supply Chain, ERP, Financials—let’s just keep going—Marketing, Marketing, Sales, Service, all of those things—we have all those products—we're the only company on the planet Earth that has all those products—who do you think is going to win?

"Five years from now, is there going to be a dominant enterprise SaaS company, and if there is one, who do you think it’s going to be? Seriously, who? Salesforce?

"They’re the only ones that have a larger SaaS business than us," Ellison continued. "They’re the last guy in front of us, but we’re growing more than twice as fast as they are."

And then Ellison pushed hard on the strategic issue of product lineup versus addressable market.

"But that’s not their main problem. Their main problem is they don’t have an ERP product—they’re not playing in most of the market. They have nothing in Manufacturing, nothing in Supply Chain, nothing in ERP, nothing in HCM," Ellison said.

"They have a powerful position in Sales automation—I mean, it’s in the name of their company. They have a Service offering where we’re their primary competitor and we’re about even against them in Service. They’re really not a big player in Marketing—Adobe is a bigger player in Marketing.... And we have a big play in Marketing.

"So, we're in all of these. And so that's why I ask: who is going to be number one in SaaS?"

Ellison later returned to those themes and noted that while Salesforce.com's current SaaS revenue of more than $10 billion is much larger than Oracle's current SaaS revenue—for the three months ended Aug. 31, Oracle posted SaaS revenue of $1.1 billion—Oracle's bringing in new SaaS customers and revenue much faster than Salesforce.

"So who do you think is going to beat us in enterprise SaaS? It’s a gigantic business with phenomenal margins. The cloud business is much better than the on-premises business because you’re adding much more value and you really can’t count the users. So, I think we’re the big winner in SaaS," Ellison said.

"By the way, this will be the third year in a row, this year, that we’ve sold more new ARR [Annual Recurring Revenue] than Salesforce.com. Yeah, they started, 20 years—well, 15 years before we did and we haven’t passed them quite yet, but it’s very close.

"The last three years we’ve been the biggest seller of SaaS applications on Earth—the last two years and this will be the third year. I’m not talking about percent growth or anything. I mean just dollar for dollar, we sell more SaaS than they do.

"And they don’t have a lot of products."

Workday

It's significant that early in his comments about Workday, Ellison offered his primary competitor a huge compliment, saying it's "a formidable competitor." But as with Salesforce, he added, the primary challenge Workday faces is a limited product line: highly successful in HCM, and in the very early days of its Financials business.

"We compete with Workday in HCM—you can argue they’re a little in front of us, we’re a little in front of them. We think we beat them a lot more than they beat us, but what have you. They’re a formidable competitor, and we compete with them very aggressively," Ellison said.

"We both have significant market share in the HCM business and lots of big companies are putting HCM in the Cloud. That’s been going on for a couple of years now.

"But HCM is a rather simple product compared with ERP—Financials, Supply Chain, Manufacturing, Procurement—this is an order of magnitude more complex set of processes than HCM.

"And right now, we are the world leader in ERP in the Cloud with no one remotely close, right? In Cloud ERP, our closest competitor is probably Workday," said Ellison, speculating that "depending on how you count it," Workday has "at most" a few hundred customers.

"But we have more than 5,000 Fusion Financials ERP customers, and then on NetSuite, which is lower end of the market, we have about another 13,000 customers."

Ellison later returned to the long-term power of scale, and how it will become increasingly important in both the breadth of SaaS offerings a vendor can offer, and across the multiple layers of the cloud: SaaS, PaaS and IaaS.

And he seemed to indicate that because of its move into Financials, Workday must be considered Oracle's primary competition in the long-term battle for SaaS supremacy.

"So again: who’s going to beat us? Who’s trying? I can only find one company, Workday, and our ERP is—I don’t know—years in front of them.

"Their strong suit, their real strong suit is HCM but we’re beating them badly in HCM in the middle market right now, and let me explain why. Because there’s no such thing as an HCM middle market. In the mid-market, HCM and ERP go together—you don’t make a separate HCM decision and a separate ERP decision. So whenever it’s an ERP/HCM bake-off, they don’t have anything much in ERP," Ellison said.

"Can Workday survive just selling some number of high-end HCM systems? Let’s say they’re even with us in high-end HCM systems—we get half, they get half. We get all the mid-market and we get all the high-end ERP—how do they continue to invest?"

"They need a platform because if you really want to be the ERP business, people write extensions—they write special reports, they write extensions to ERP. They add to the SaaS, so you need to provide those tools in your cloud to let your customer add to your ERP suite.

"Well, we have a platform—they don’t have a platform. What are they going to do?"

So, as I said near the top of this article, this is one man's view, and like all of us, Larry Ellison has been wrong more than once. And maybe he's wrong on this, and his long-game view of how the SaaS and PaaS markets will play out will turn out to be full of holes.

In that context, I'm happy to invite Amazon, Salesforce and Workday to share their views on how they see these markets playing out, and how they would answer that question that Ellison repeatedly posed to the analysts: "Who's going to win?"

As businesses jump to the cloud to accelerate innovation and engage more intimately with customers, my Cloud Wars series analyze the major cloud vendors from the perspective of business customers.

I've analyzed and written about the enterprise-tech business for more than 20 years from the media side as an editor-in-chief and chief content officer, and more recently as Chief Communications Officer at Oracle from 2012-2016. I've written thousands of articles and column...